Ten years, ten lessons, as seen through an early investor's eye
This is a repost from a story from Frederic Court on Medium
Ten years ago today, I received a newsletter entitled “Farfetch.com launches”. This marked the launch of the fashion luxury platform with its first inception, initially connecting 40 boutiques or so to customers and fashion lovers around the world. Two weeks ago, Farfetch went public on the NYSE, with an exceptional reception from the market. This was an incredible experience for the Farfetch team as we witnessed the IPO directly from the floor of the NYSE, a day filled with emotion, with tears of joy, pride, high-fives and many hugs. On my way back from NY to London, I had time to reflect on some of the steps along this journey, which started 10 years ago, and some of the key lessons that have led to such a success.
1. A long journey
It takes a long time to build a business, a brand and to realise a vision. The quote attributed to Bill Gates, “most people overestimate what they can do in one year and underestimate what they can do in ten years”, resonates as we look back in disbelief, going from start-up to the global platform for luxury fashion, with a c. $8bn market capitalisation on the 1stday of trading. Ten years ago, José Neves, founder and CEO, pressed the button to launch Farfetch.com on 9th October 2008, with a team of 5 people around him. I was one of the recipients of that 1st Farfetch newsletter (headline below) and a year later I met José, curious to learn more about the business.
A few months later I was fortunate to lead the first investment in the company with a £3m Series A(while at Advent Venture Partners). It’s now a real joy to see that anyone can invest in the company through the New York Stock Exchange (NYSE:FTCH) and to watch Farfetch blossom into a global company with over 3,000 employees and over 2m of customers.
2. The business model, stupid!
Farfetch belongs to this small number of online fashion businesses that pioneered a new model in their industry, starting in the 90s with NAP, ASOS and Vente-Privée. Net-A-Porter paved the way for luxury online, blending ecommerce with beautiful content; ASOS was the first online fast-fashion retailer, a must-visit site for young British customers loving affordable fashion; and Vente-Privée in France reinvented the online outlet model with smart, and counter-intuitive, “flash sales” by-invitation only. Having seen all three launch and thrive, I stumbled upon Farfetch in 2008 while looking for something new, which could be the next innovation in the industry. Farfetch created a new retail model for luxury fashion, building network effects on both supply and demand, very hard to replicate. I first pitched it to my VC partners as a “digital Selfridges”: “Imagine a place with multiple floors, the best fashion products across multiple categories, infinite shelves but no own inventory”. The key innovation is a retail model that is technology-enabled but doesn’t rely on owning stock, just like many department stores who moved to concessions taking a percentage of sales.
3. Recession, an unlikely friend
On September 15, 2008, Lehman Brothers filed for bankruptcy. On October 8, 2008, Farfetch launched… While it sounds like the worse time to launch an unknown, luxury, global fashion and luxury commerce platform, it ended up being a blessing. The recession had an immediate impact on demand in Europe in particular, as boutiques had a sudden dramatic loss in local business. Selling online in 2008 wasn’t prevalent (especially at the premium/luxury segment) but José managed to get at inception 40 boutiques to sell their products on Farfetch. In periods of prosperity, brands and retailers have fewer issues finding customers. When the economy slows down, or when it goes into a deep recession like in 2008 everything changes. It’s also likely that whenever we hit another economic crisis, companies with technology and agility will benefit enormously, especially those that have the cash to sail through the storm.
4. People, people, people
Farfetch’s key reason for success has been people. It benefitted from the leadership of a remarkable entrepreneur, who has cultivated humility and has grown tremendously with the opportunity, to the point where is now leading a public company. One of the key traits of entrepreneurship is that success relies on making what sounds impossible to most, possible. It requires a tremendous drive, vision, agility and resilience, key traits that José relied on during his journey. In our early due diligence 9 years ago, it was clear that the early adopters in the industry had joined the Farfetch platform because of their relationship with José. In fashion, many companies are family-owned (from multi-brand boutiques to department stores to even the largest luxury groups), many decisions are based on trust, relationships, and emotion. This is something José has worked tirelessly on, building trust with key partners and winning over their support over time, as he describes in his letter to the new shareholders. He also surrounded himself with strong leaders across key functions and a very international, multicultural team, reflecting the global opportunity and diversity of the brands, boutiques and customer base. Similarly, our board grew from the two of us (José & I) to an impressive group with diverse backgrounds and skills.
5. The importance of values and culture
A striking moment in Farfetch history was a senior hire we made that didn’t work out. The individual was very talented, very experienced and had many of the attributes we thought we needed to add to the team, but the appointment failed: there was a massive cultural clash. That’s when José realised he had to pause and articulate Farfetch’s values and culture, at a point where the business and headcount were growing fast, in different locations and continents. The Farfetch team led a collaborative process to articulate what Farfetch was about and what values were driving the organisation. This added another foundation to the business, paving the way for future growth.
6. A global tech platform born in Europe, not in Silicon Valley!
Farfetch is an unlikely global technology winner, with a humble start as a spin-out of José Neves’ shoe brand and fashion retail business based between Guimaraes in Portugal and London. Interestingly, over the years and until the IPO, capital came essentially from European investors (Advent, Index, Felix or Vitruvian), strategic investors (such as Conde Nast, Chanel) and Asian investors (most recently JD.com). The company did not raise money from Silicon Valley which did not connect culturally with the luxury and fashion opportunity (Stitchfix being the most notable exception). Farfetch, like many other fashion startups, was built on Europe’s Creative Class as a foundation, combining the multiple talents available from London to Porto, Paris to Milan, Berlin to Stockholm, etc. Europe has a tradition in lifestyle, creativity, brand-building and telling stories around heritage and avant-garde brands, an immense asset for the continent to create unique and inspiring products and to impact culture.
7. It takes money
Farfetch is a technology company with a focus on the fashion industry and it built its playbook following the path of the Silicon Valley giants, with a huge ambition, fast pace and significant access to capital. When Farfetch started it was inconceivable that the company would be able to access such capital to fulfil its vision and model). As the company kept on executing its plan, growing its business and expanding its ambition, it was able to find like-minded investors who bet on the vision, opportunity and the team’s ability to execute. It raised $700m across six funding rounds prior to IPO over 8 years, this is what it takes to build a global platform. In hindsight it was a perfect venture investment, as it had everything venture investors want to see: a large and growing market, a highly differentiated model, significant barriers to entry, a win-win proposition for both sides of the marketplace (customers and boutiques/brands), an attractive financial model (strong unit economics, no inventory, working capital, etc.) and essentially a remarkable leader with a strong team.
8. VC 101 — Thematic deal search & focus can work big time for sourcing
For the anecdote here is a copy of the first page of the 2010 Investment Memo we wrote to pitch the investment opportunity. We found the company because we were looking for business model innovation in the vast fashion and luxury market in Europe, where we have traditionally seen great success. It’s good to see we go this right and that the company has been so consistent on its plan and ambition, and I am so grateful that José picked us to be part of the journey and partner with him. Thematic deal search is now one of the key pillars of what we are building at Felix Capital.
9. A special moment
I am often asked for anecdotes about Farfetch and the story so far, there are many special moments but here is one that resonated particularly strongly when it happened, at one of the company’s “Gatherings”. José had pioneered the event early in the life of the company, to cement the relationship with our key partners, and create a stronger sense of community, gathering all the boutique owners and brands to Porto or London, once or twice a year for a couple of days (hundreds of people connecting). This was a great opportunity to meet many boutiques and brand owners, to explain the development of the Farfetch platform, and get feedback from users. A couple of years into the investment, one of the first boutique owners to have worked with Farfetch (and still a partner to this date) came to me at a Gathering and said: “thank you, for investing in Farfetch and saving my store”. Without Farfetch his store would have closed because of the recession and he was grateful that we had funded Farfetch, which ended up rescuing his business from the recession. This was an emotional moment illustrating how critical the platform had been for many boutiques at difficult times, reinforcing the mission of the company, and all its stakeholders, to connect fashion lovers and make those products more accessible.
10. For the love of fashion
Looking back, the past decade has been extraordinary for Farfetch and its (growing) team. If I have one regret it’s not to have documented it enough. I wish I had more pictures for so many souvenirs along the journey, for every place we have been with José and the team, as over the years Farfetch took us across the world, from London to Guimaraes, from Milan to Paris, from LA to NY, from Shangai to San Paolo, from Tokyo to Seoul… So that’s why I was so happy to finally get a picture on the IPO day with Jose!
We now embark on the next decade, with the same passion, for the love of fashion!
Founder & Managing Partner, Felix Capital